By – Lakshay Sharma
In the Supreme Court of India
|Name of the Case||Excel Crop Care Limited. V/s CCI|
|Citation||8 SCC 47 (2017)|
|Date of the Judgement||8 May 2017|
|Petitioner||Excel Crop Care Limited|
|Respondent(s)||Competition Commission of India|
|Bench/Judges||A.K. Sikri J., N.V. Ramana J.|
|Statutes/Constitution Involved||the Competition Act, 2002|
|Important Sections/Articles||S. 3(3)(a), S.3(3)(b), S. 3(3)(d), S. 3(1), S. 27(b), S. 53(b) of the Competition Act, 2002.|
India has been growing exponentially in the past decades in a matter of production, processing, and other industrial aspects. Governmental tenders are passed to worthy upholding companies through bids via various governmental agencies to meet the production need/requirements and feasible availability of the products. However, this practice has taken a turn to the wrong side and is tainted by some strong organizations/companies, which use unfair means to secure those tenders and be on the top of the chain and hold the monopoly of the production market, and are suppressing other companies in the sector.
Excel Crop Care Limited V/s CCI & Ors. is a case that has a history on how some companies pertaining monopoly on governmental tenders using unfair means whatsoever. When found indulged in such acts, these companies were fined heavily, in response to which separate Appeals were filed in the Supreme Court by these companies which were later clubbed into a single case by the court.
Background of the Case
Food Corporation of India, in a complaint to the CCI, alleged, four organizations/companies, M/s Excel Crop Care Limited, M/s United Phosphorus Limited, M/s Sandhya Organics Chemicals Private Limited, M/s Agrosynth Chemicals Limited were engaged in an Anti-Competitive Agreement and have been rigging the biddings for the past few years as they have been quoting similar amounts. Also, these companies have been doing the same from 2007-2009 for tenders of Aluminium Phosphide Tablets.
The CCI in response to which appointed Director-General to take charge of the matter and carry forward an investigation on the same and it was found, these companies have been violating S. 3 of the Competition Act, 2002.
The CCI passed an order imposing a penalty @ 9% on the average total turnover for the past three years of the companies.
An appeal was filed in the appellate tribunal under S. 53B of the Competition Act, to which the Tribunal just opposed the penalty @ 9% imposed by the CCI.
Facts of the Case
- On 4 February 2011, the FCI wrote a letter to the CCI complaining four companies namely M/s Excel Crop Care Limited, M/s United Phosphorus Limited, M/s Sandhya Organics Chemicals Private Limited, M/s Agrosynth Chemicals Limited had come into an anti-competitive agreement in relation with the tenders issued for the APT by the FCI.
- CCI appointed and entrusted the matter to Director General (DG) for investigation.
- On 14 October 2011, DG submitting his report gave affirmation that the aforesaid companies had indeed formed a cartel and came into an anti-competitive agreement, which violated S. 3(3) of the Competition Act.
- CCI on 23 April 2012, after hearing both the parties passed an order concluding, the companies had violated the S. 3 of the act and imposed a penalty @ 9% on the average total turnover of these companies for the last three years under S. 27(b) of the Act.
- The companies filed an appeal in the Appellate Tribunal (COMPAT) under S. 53B of the Act.
- On 29 October 2013, the COMPAT gave its judgment agreeing to all the elements of the order of CCI but opposing the penalty @ 9%.
- Both parties moved to the Hon’ble Supreme Court, questioning the validity of the Order given by the COMPAT as CCI was against the reduction of penalty and the companies were against any fine imposed.
- If May 2009 tender was appropriate to be considered for the complaint.
- Do the CCI and DG have authority to intervene in the matter after the complaint was made, keeping in view the 2011 boycott?
- S. 3 of the act is violated or not as per the actions of the companies?
- If the penalty charged under S. 27(b) had to be total turnover, or it could be only relevant turnover.
Arguments of the Petitioner
- The explanation by COMPAT for S. 3 (3) (d) doesn’t hold any application as it refers only to ‘bid rigging’ not ‘collusive bidding.
- APT pesticide is needed only by the FCI and the Central Warehousing Corporation or the Central and State Warehousing Corporations creating a monopoly situation making the buyer dominant.
- Buyers being dominant, parallel pricing comes into effect which leads to quoting the same price by the suppliers.
- Merely on the fact that appellants quoted the same price in respect of the 2009 FCI tender, it isn’t wise to jump to the conclusion that there is some sort of ‘agreement’ between the parties, in the absence of any other evidence.
Arguments by the Respondents
- The price negotiation is to be done with the lowest bidder, but here all the three appellants are the lowest bidders, arousing suspicion and the presence of the process of bid-rigging.
- Keeping the above argument in context, only 8th May 2009 isn’t the crucial date but 1st June 2009 and 17th June 2009 are as well. Concluding that the illegality of bid-rigging commenced on 8th May 2009 and was in action on 1st June 2009 and 17th June 2009 as well.
- The letter, “UPLD:FCI:HQ:ALP:VKJ:09” dated 7th May 2009 and letter of negotiated offer dated 17th June 2009 clarify and prove that all the appellants here made the offer at Rs.386/- per kg. making it clear and obvious that an anti-competitive agreement was entered into on 8th May 2009 and continued thereafter.
- Bid rigging and collusive bidding aren’t inconsistent with each other and are conjoining concepts.
- “There are only four suppliers of the said product out of which three are the appellants”
Section 3 in the Competition Act, 2002
(1) No enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition, or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India.
(2) Any agreement entered into in contravention of the provisions contained in sub-section (1) shall be void.
(3) Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which—
(a) directly or indirectly determines purchase or sale prices;
(b) limits or controls production, supply, markets, technical development, investment, or provision of services;
(c) shares the market or source of production or provision of services by way of allocation of the geographical area of the market, or type of goods or services, or number of customers in the market or any other similar way;
(d) directly or indirectly results in bid-rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition: Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. Explanation.—For the purposes of this sub-section, “bid-rigging” means any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.
(4) Any agreement amongst enterprises or persons at different stages or levels of the production chain in different markets, in respect of production, supply, distribution, storage, sale or price of, or trade-in goods or provision of services, including—
(a) tie-in arrangement;
(b) exclusive supply agreement;
(c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance shall be an agreement in contravention of sub-section (1) if such agreement causes or is likely to cause an appreciable adverse effect on competition in India. Explanation.—For the purposes of this sub-section,—
(a) “tie-in arrangements” includes any agreement requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods;
(b) “exclusive supply agreement” includes any agreement restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than those of the seller or any other person;
(c) “exclusive distribution agreement” includes any agreement to limit, restrict or withhold the output or supply of any goods or allocate any area or market for the disposal or sale of the goods;
(d) “refusal to deal” includes any agreement which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought;
(e) “resale price maintenance” includes any agreement to sell goods on the condition that the prices to be charged on the resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged.
(5) Nothing contained in this section shall restrict—
(i) the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under:
(a) the Copyright Act, 1957 (14 of 1957);
(b) the Patents Act, 1970 (39 of 1970);
(c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 (47 of 1999);
(d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999);
(e) the Designs Act, 2000 (16 of 2000);
(f) the Semi-conductor Integrated Circuits Layout-Design Act, 2000 (37 of 2000);
(ii) the right of any person to export goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export.”
Section 27 in the Competition Act, 2002
“Orders by Commission after the inquiry into agreements or abuse of dominant position.—Where after inquiry the Commission finds that any agreement referred to in section 3 or action of an enterprise in a dominant position, is in contravention of section 3 or section 4, as the case may be, it may pass all or any of the following orders, namely:—
(a) direct any enterprise or association of enterprises or person or association of persons, as the case may be, involved in such agreement, or abuse of dominant position, to discontinue and not to re-enter such agreement or discontinue such abuse of dominant position, as the case may be;
(b) impose such penalty, as it may deem fit which shall be not more than ten percent. of the average of the turnover for the last three preceding financial years, upon each of such person or enterprises which are parties to such agreements or abuse: Provided that in case any agreement referred to in section 3 has been entered into by any cartel, the Commission shall impose upon each producer, seller, distributor, trader or service provider included in that cartel, a penalty equivalent to three times of the number of profits made out of such agreement by the cartel or ten percent. of the average of the turnover of the cartel for the last preceding three financial years, whichever is higher;
(c) award compensation to parties in accordance with the provisions contained in section 34;
(d) direct that the agreements shall stand modified to the extent and in the manner as may be specified in the order by the Commission;
(e) direct the enterprises concerned to abide by such other orders as the Commission may pass and comply with the directions, including payment of costs if any;
(f) recommend to the Central Government for the division of an enterprise enjoying a dominant position;
(g) pass such other order as it may deem fit.”
Section 26(1) in the Competition Act, 2002
“(1) On receipt of a complaint or a reference from the Central Government or a State Government or a statutory authority or on its knowledge or information, under section 19, if the Commission is of the opinion that there exists a prima facie case, it shall direct the Director-General to cause an investigation to be made into the matter.”
The Hon’ble court gave the judgment keeping in mind all the issues raised-
- The Companies were not penalized for their actions only in May 2009 tender but also for the actions in later years when the act was in force. Thus the rulings of CCI and COMPAT regarding the March 2009 tender were upheld and supported by the learned court.
- The DG has the power to look into the circumstances as the complaint made by the FCI didn’t just mention one particular tender but a number of them through the anti-competitive actions of the cartel to which CCI deemed fit to the appointment of DG for further investigation.
- To the companies claim, the presence of only a couple of buyers and sellers led to the identical pricing and boycott of the 2011 tender because of high payment for bid placement. Hon’ble Court responded, the prices were identical even though the companies’ location and production cost had a great difference, the companies offered identical pricing at each bid but the price varied in different bids, there were only four suppliers in India. Thus justifying the CCI ruling.
- The CCI opposed COMPAT’s order as it mentioned the relevant turnover and decreased the penalty of the companies whereas the S. 27(b) of the act uses only the word turnover. To which Hon’ble court responded, the relevant turnover to be considered on the basis that these violations were related to only particular products and penalty shouldn’t be imposed on the turnover generated from other products. The court stated that relevant turnover can also serve as a deterrent punishment and emphasized the essentiality and need of proportionality in punishment.
The CCI and the DG appointed by it have the authority to look into circumstantial evidence and proceed with the investigation if they are of the viewpoint/opinion /suspect that a violation has occurred. Emphasizing the proportionality of punishment, the penalty at relevant turnover is also a deterrent, companies aren’t to be penalized out of the revenue generated from products outside the concerned issue which in this case is APT.
 Competition Act, Section 2, No. 12, Acts of Parliament, 2003 [IND]
 Competition Act, Section 27, No. 12, Acts of Parliament, 2003 [IND]
 Competition Act, Section 26(1), No. 12, Acts of Parliament, 2003 [IND]